The North Sea Transition Deal – the future for the UK offshore oil and gas sector
On 24 March 2021, the UK Government announced its commitment to the North Sea Transition Deal (“NSTD”), with the UK offshore oil and gas industry.
This provides a clear blueprint for decarbonisation of North Sea production via greater cooperation between the Government and industry players in line with the Government’s legally binding target for Net Zero greenhouse gas emissions by 2050.
Of particular significance is the announcement that future licensing rounds will, subject to a checkpoint system discussed below, go ahead and consequently that ongoing oil and gas exploration and production in the North Sea is compatible with the UK Government’s Net Zero ambition. This is an important clarification for the sector, and gives wider comfort that energy intensive industries can co-exist in the Net Zero future.
The NSTD is intended to deliver on the UK Government’s Energy White Paper published in December 2020 in which it committed to integrate the UK’s oil and gas industry into its wider decarbonisation strategy.
The NSTD is the first deal of its kind for any of the G7 nations and shows a clear governmental commitment to work with the oil and gas industry rather than decommissioning and pushing business offshore. This shows the necessary foresight to take the steps necessary to preserve the UK’s energy security and protect the numerous jobs and skills which will ultimately be required to help achieve the government’s aims for a low carbon future. It will provide a documented pathway for other oil and gas producing nations, and usefully demonstrates the UK's leadership in the run up to the UN Climate Change Conference (COP26) in November 2021.
The ‘clean’ oil and gas industry aims set out in the NSTD include:
- Using existing infrastructure, capability and private investment to exploit new and emerging technologies such as hydrogen production, carbon capture usage and storage ("CCUS"), offshore wind power and decommissioning; in turn supporting new export opportunities and new high-value jobs for the low-carbon future;
- Investment in and development of new abatement technology (such as electrification of drilling/production infrastructure through renewables such as offshore wind power, CCUS technology and an end to flaring). Such an approach to flaring shouldn’t come as a surprise, given the stance of other nations such as Norway where flaring is strictly prohibited;
- Introduction of a new Climate Compatibility Checkpoint for future oil and gas licensing rounds to ensure any licenses are awarded in line with the Government’s wider climate change objectives. Future licensing rounds will not proceed where evidence suggests that it would undermine the delivery of the Government’s targets. The checkpoint process will assess the state of play at the relevant time, considering the likes of current production levels, domestic demand, the prevalence of alternative renewable technologies and how the industry has progressed in the drive to reduce its emissions vis-à-vis the relevant targets; and
- Pivoting the existing oil and gas industry work force to equivalent roles in a new low carbon economy.
Government and industry commitments
In the relation to the industry targets, the UK Government has been working with the industry (via Oil & Gas UK) over the last year or so to agree various commitments to move to cleaner energy. Key commitments agreed include:
- Reduction of offshore production emissions of 10% by 2025; 25% by 2027; and 50% by 2030, against a 2018 baseline;
- Dual public and industry investment of £14-16 billion by 2030 in new technologies to reduce carbon emissions. This includes £3 billion investment in CCUS technologies alone and up to a further £10 billion investment in hydrogen production;
- Appointment of an Industry Supply Chain Champion to support coordination of local growth and job opportunities with other sectors, such as CCUS and offshore wind power;
- 60Mt reduction in greenhouse gas emissions, including 15Mt through the progressive decarbonisation of UKCS production over the period to 2030; and
- By 2030, a voluntarily commitment from the industry that 50% of any offshore decommissioning and new energy technology projects will be provided by local businesses, thereby jobs to the UK.
The response from industry participants to the NSTD has been broadly positive. OGUK’s statement on the announcement stated that:
“The North Sea Transition Deal is a transformative partnership which will harness the expertise of the UK offshore oil and gas industry to urgently meet the country’s climate ambitions of net zero emissions by 2050...”
It remains to be seen if the offshore oil and gas industry can be effectively repurposed to play a part in the transition to Net Zero 2050. To do that, many will want more clarity and firm commitments on the Government's support for carbon capture usage and storage in particular.
We will be providing updates as further details of the NSTD are released, along with further articles on the wider impact of the UK Government’s decarbonisation strategy.